Square Enix didn’t know how to squeeze profits out of its western studios

Square Enix is washing its hands of its biggest western studios. The company announced it is selling Eidos and Crystal Dynamics to Embracer Group. This raises numerous questions about what is happening next with Square Enix, but first let’s focus on the why. Why did Square Enix drop the Tomb Raider and Deux Ex studios? And why for the seemingly low price of $300 million?

The bottom-line reasoning for this move is profitability. Square Enix has spent a lot of money on these studios, but it hasn’t figured out how to make income from that investment. In 2021, Eidos Interactive generated its highest revenue in three years. But those revenues did not offset its costs — Eidos had a profit margin of 0.65%. During that same period, Crystal Dynamics also had its highest revenue but generated a profit margin of just 3.6%.